Those who live in a place are best suited to decide what’s best for it

I spent this past semester in Washington DC with a group of students. They spent most of their time in internships, but on Wednesdays every week we went around to various offices throughout the city to “interview” with people who work there, finding out what they do and how they got to doing it. These meetings typically lasted an-hour-and-a-half and were quite illuminating.

On one such Wednesday, we visited two organizations deeply involved in the world of philanthropy: the World Bank and JP Morgan Chase.

The representative of the World Bank began her presentation with a very simple claim: over the last 30 years extreme poverty has declined from about 35% of the world’s population to slightly more than 10%. This is, obviously, a pretty significant achievement and one for which The World Bank seemed eager to take credit.

I’m no expert on either the World Bank or understanding the multivariate causes of decline in global poverty. More information about the Banks’s actual spending can be found here and here. While acknowledging the limitations of an hour and a half interview with a World Bank representative, I was struck by two things: first, the World Bank has a completely confusing business model, wherein they lend money out at lower rates than they borrow it. Without the largesse of member nations it’s hard to know how they could stay in business, which is to say they are not really a “bank” in the normal sense of the term, other than the fact that whatever profits they do enjoy come almost exclusively from market operations.

Second, that despite their claim that they are at the forefront of this radical reduction in global poverty, it is difficult to square that claim against what they have actually spent. Our representative told us that the World Bank spends roughly $42 billion annually on anti-poverty programs. This would work out annually to roughly $42 per person listed as living in “extreme poverty.” And while granting $1 a week might make a difference to these persons, it is hard to imagine what kind of multiplier effect you would need in order to explain dropping from 35% to 10% of the population. Furthermore, by her own calculations, their spending amounts to about .05% of global GDP. Again, the drastic decline in global poverty doesn’t seem well explained by such a pittance. Still, they probably do more in influence than they do in actual capital formation.

The World Bank holds about $400 billion in assets. In comparison, JP Morgan Chase has nearly $3 trillion.

In terms of the allocation of capital, there is hardly any agency in the world that wields more influence than JP Morgan Chase. Their annual operations match in value the total assets of the World Bank. Now, it’s not my place here to assess the consequences or means of such capital accumulation, nor even to look at how such formation and investment in foreign markets might be the biggest driver of poverty relief. There are plenty of organizations wielding evidence that markets and global investment are the world’s greatest anti-poverty programs, and others suggesting it’s leading to greater inequality.

The interesting part of the interview, however, was both how this director got to that position and what it suggests about perhaps salutary changes in the world of philanthropy.

She was recruited by people at JP Morgan Chase even though she made it clear she had no interest in working there. When they persisted, she told them they were doing philanthropy all wrong. When asked how she would do it, she responded with a set of concrete suggestions grounded in the idea that the people who live in a place are in the best position to decide what’s best for that place.

She was hired on the spot and told to do the things she recommended. The key, she says, is to have capital grease the relationship between local leaders, nonprofits, and government entities (local, state, federal). In this nexus things can get done.

The impulse seems to me largely correct.

It’s like building infrastructure in America, where $50,000 spent on a series of small projects that relate to actual human-scale problems will do infinitely more good than tens of millions of dollars invested in boondoggles. They’re not sexy, but they get the job done. They have the added advantage of being relatively inexpensive failures: as urbanist thinker Chuck Marohn at Strong Towns likes to say, “keep your failures small.” That keeps a system more pliable and less fragile.

On the evidence, it seems that at least some large-scale philanthropic ventures might be getting the message. Get capital in the hands of people who can handle it responsibly and can build something worthwhile with it, such as a small business. Invest in places that need investment, such as poorer communities (JP Morgan Chase is working closely with local officials and nonprofits in Detroit) where you get a larger return on your investment dollars.

America will retain its need for capital investment, particularly in struggling places that have been eviscerated by economic changes. It will become even more imperative as the public funding crisis deepens, which will be the topic of my article next week. Stay tuned.